Nintendo and Sony Will Lose Gaming Revenue to These 2 Smartphone Giants

The video game industry is buzzing over Activision’s (NASDAQ:ATVI) latest Call of Duty Modern Warfare 3 game. It is estimated to be the best selling game of all-time, easily beating Electronic Arts‘ (NASDAQ:ERTS) recently released Battlefield 3. Although these two games have injected some much needed energy into video game consoles, major players in the portable gaming industry continue to lag behind new technology.

Flurry, an analytics firm, estimates that Nintendo’s DS and Sony’s (NYSE:SNE) PSP will account for 42% of the US portable game software revenue in 2011. This is a sharp downturn from 89% in 2009. For 2011, the firm estimates that Apple (NASDAQ:AAPL) iOS and Google (NASDAQ:GOOG) Android games will account for 58% of US software revenues.

Flurry explains, “The most striking trend is that iOS and Android games have tripled their market share from roughly 20% in 2009 to nearly 60% in just two years. Simultaneously, Nintendo, the once dominant player, has been crushed down to owning about one-third of market in 2011, from having controlled more than two-thirds in 2009. Combined, iOS and Android game revenue delivered $500 million, $800 million and $1.9 billion over 2009, 2010 and 2011, respectively.”

Digitally distributed games have grown in popularity as smartphones and tablets continue to capture the interests of all age groups. Furthermore, mobile games come at a much lower price. There is a wide abundance of free and $0.99 games available, as opposed to paying $25 or more for a game at a retail store like GameStop (NYSE:GME). The effect is having a major impact on Nintendo’s bottom line. The company is expecting its first fiscal year loss since the company began reporting profits in 1981. While the current battle in the console game industry involves Microsoft (NASDAQ:MSFT), Sony, and Nintendo going against each other, Flurry speculates that Nintendo may be forced to distribute its content, for the first time, across non-proprietary platforms.